Thoughts on High Dividend Yield Stocks. Or Maybe I Should Just Stick To a Fixed Deposit?

by Vinaya HS on May 16, 2012

in Finance

Thanks for visiting Capital Advisor. I frequently update this blog to cover various topics on personal finance such as investment strategies, financial products that you should buy and ones that you really should stay away from, financial calculators, emerging themes such as early retirement and financial independence, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

[Sorry if this topic seems a bit advanced and haywire in its presentation but I felt it'd be good to share with you.]

I was reading-up on and strategizing the other day about the possibility of including high dividend yield stocks as one component of my early retirement portfolio. The general line of thought in this strategy is to buy and hold high dividend yield stocks and then use the dividends paid out each year as one of your sources of passive income.

Post my initial reading, here are some of the thoughts spinning around in my head –

  • The dividend yield for a chosen stock over a 5-year window should consistently have been above the post-tax rate of return on an equivalent debt instrument (possible benchmarks — a one-year fixed deposit or a one-year recurring deposit at prevailing rates of interest). Else you might as well stay invested in the equivalent debt instrument.

  • I haven’t even heard the names of most of the current highest dividend yield stocks (an example list). On the other hand, the stocks that I am comfortable and familiar with don’t seem to payout a high enough dividend yield (when compared to the equivalent debt benchmarks).

  • Does one need to even bother about capital appreciation in such a portfolio?

  • If picking individual high dividend yield stocks into a portfolio, when’s the correct time to recalibrate/churn the portfolio (because you can’t predict dividend yields)?

  • Or should I chuck it all and simply be conservative in a good old fixed deposit?

I think I need to explore more. But have you ever attempted such a strategy before? How did it fare? I’d love to hear your thoughts. Even if you haven’t, I’d still like to hear about any research that you might have done on this topic.




Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 2 comments… read them below or add one }

Siddhant May 16, 2012 at 11:07 AM

Hi Vinaya,

Some of the stock which are hidden are DVR stocks, these are differential Voting rights shares. they have the same or more Dividend compared to Normal sahres but there price is very low,

You could look at that facet, here is my article on it.
http://khotapaisa.blogspot.in/2012/05/hidden-opportunity-in-share-markets.html

Vinaya H S May 16, 2012 at 7:18 PM

@Siddhant –

Thanks for the link. Will read-up.

Previous post:

Next post: